May IIP at 2.4%; Clamour for rate cut grows

* Output of mining,capital goods sectors continue to be a drag on performance

Written by ENS Economic Bureau | New Delhi | Published: July 13, 2012 1:00 am

Industrial output climbed to 2.4 per cent in May higher than estimated,but doubts over the growth rate persisted as the April data earlier pegged at 0.1 per cent was reduced to minus 0.9 per cent.

As expected,production in the mining and capital goods sector continued to shrink as per data released by the Central Statistical Office on Thursday.

The low growth was immediately flagged by the government as the reason why RBI should cut rates on July 31 or even earlier.

Commerce and industry minister Anand Sharma said,“We will urge the RBI to revisit this issue (interest rates) to ensure that capital is available to the industry… given the slowdown there is every justification to ensure that Indian industry remains competitive and the manufacturing grows.”

The cumulative growth for April-May for the industrial sector stood at 0.8 per cent over the corresponding period of the previous year. The low growth makes it fairly sure that GDP for the first quarter of this fiscal will be less than 6 per cent.

“IIP numbers have shown improvement compared to previous month. Electricity machinery production is showing decline (and we will be studying) if this is due to imported power equipment,” R Gopalan,economic affairs secretary,told reporters.

The data confirms the trend shown by bank credit data released on Wednesday. Bank credit has risen by only 16.5 per cent in the first quarter this year compared to 19.9 per cent a year before. Showing low growth is hitting consumers,money deposited in banks has risen even slower at 13.3 per cent in the same period.

In the current fiscal,RBI has cut rates only once by 50 basis points saying high inflation and high government spending on subsidy did not give it room to cut rates further. The output of the capital goods sector declined by 7.7 per cent in May ( it grew 6.2 per cent last year) while mining output contracted by 0.9 per cent ( grew 1.8 per cent last year). Data,however,showed within capital goods there was a 13.7 per cent growth in machinery and equipment.

DK Joshi,chief economist,Crisil,said that the IIP numbers were largely in line with the market expectations. “However,the main worry is on the investment side. Capital goods is not in the positive territory… however,this is not going to move the central bank. I don’t expect any decline in the key rates,” he said.

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